Kendall Capital

The objective of Kendall Capital’s Alternative Investment Strategy is to establish a diversified allocation of international and domestic equities and fixed income mutual fund securities to optimize the risk/reward profile of a portfolio.  By including these assets as part of an overall portfolio, investors will have exposure to a range of companies and economies that often grow at varying rates during different periods of time.

The overall asset allocation for this strategy is:

• 20% in domestic equities securities—includes companies tied to the real estate sector as well as convertibles securities (in theory, convertibles securities offer much of the upside potential of equities with less of their downside risk)
• 60% in international funds—the international market exposure integrates diversified emerging-markets funds with the ones focused on investing in the developed countries of Europe and Asia as well as in the U.S.  Global offerings provide access to the upside potential of the world’s emerging markets while their geographic range moderates the risks of investing in such exchanges
• 20% in domestic and international fixed income securities—these investments represent foreign and domestic high-yield issues that tend to boast modest volatility levels with long-term returns

The investment philosophy behind this asset allocation is to optimize the return of a portfolio by diversifying its risk.  We believe that diverse asset classes often behave differently from each other in various economic environments and that global markets can add useful diversification to the portfolios.  The underlying thread is to look for alternative investments that tend to be low correlated with domestic return movements, as measured by the S&P 500 Index.  We believe that while the United States market is pretty well correlated with the world as a whole, it is less correlated with individual foreign markets.

It is important to keep in mind, however, that although investing in overseas markets continues to move somewhat independently to the domestic U.S. equity funds in the long term, there is some correlation between these markets.  Many emerging-markets companies, for instance, are exporters that depend heavily on the continued health of the U.S. economy for their earnings.  In addition, while international investing can provide diversification and attractive investment opportunities, investors should realize that investing overseas tends to increase the volatility of the portfolios.  Foreign funds are often more risky than the ones investing only in U.S. companies due to all sorts of political, economic, currency and other type of risks. However, by balancing the exposure to global markets with other domestic stocks and bonds funds, portfolios are more diversified and less likely to move in concert with U.S. stocks. 

We believe that a well-diversified portfolio reduces the overall risk level of investing and allows an investor to hold to their discipline. Thus, it is our philosophy to regularly monitor the portfolios to assure that the initial asset allocation has not moved significantly outside the target allocation. If the portfolio has measurably deviated, we will rebalance your account to bring it back into its target allocation range as appropriate. A consistent, disciplined rebalancing approach helps our investors reduce the risk of being over (under) exposure in some areas and prevent the portfolio from taking on unintended risk.